Ooyala Leads the Way to Monetisation
By focusing on monetisation from the beginning, Ooyala has carved out a niche in the increasingly competitive online video platform market
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[This article first appeared in the Summer 2011 issue of the Streaming Media Magazine European Edition under the column title "Movers and Shakers."]

To secure not just one $20-plus million round of financing but two is a head-turning event any time. During a global economic downturn, it’s downright dazzling.

If you missed it, you must have had your head in the sand: Ooyala’s spectacular fundraising success in less than favourable financial times highlights the streaming media sector’s growing resilience to volatility in the global markets. Our technologies are becoming mature, the business models are finding their feet, and the investment market is seeing that too.

Last year I wrote an article looking at a small publisher called Online Fight Channel (OFC). The OFC guys were clients of Ooyala’s and were very satisfied with the service, its features, and its usability. In many ways it was OFC’s enthusiasm for Ooyala that first turned my own head in Ooyala’s direction: in a market literally bursting with online video platforms (OVPs), differentiation is becoming extremely refined, and generally it has little to do with technology and more to do with pricing or simply the relationship between the OVP and the client (for example, local language support, etc.).

I caught up with some of the Ooyala team at IBC last year, just a few days after the announcement that the company had secured $22 million from existing and new investors in an oversubscribed funding round. I was naturally expecting caviar and champagne, but the team members were head down, focused on business, and most certainly came across as if they had a very tight plan for using their honey pot. I like that. If I had been an investor I would have liked that too.

I spoke to Bill Gash, regional sales director in Europe, and he gave me the helicopter overview of the service. It was good to hear the sales expectation and the product’s range of features. I’ll discuss how those are structured and prioritised a little later on in this article.

In the course of preparing this article, I discovered that Ooyala actually does offer a few strong differentiators. Its recent funding round gives the company a significant working capital reserve, and it is with this full tank that

it is going to steal a march on its nearest competition and ensure it is well-positioned to support the Asian market as it continues to grow.

That funding will allow Ooyala to position early and play a waiting game, a luxury few other OVPs have at this time. With more than 65 OVP marketing services in the sector at the moment (down from a peak of 90 or so at the turn of the year) and only Brightcove as the obvious 800-pound gorilla, few can be positioned to get some significant market share as well as Ooyala is today.

Focused on Monetisation From the Beginning

I caught up with one of the founders of Ooyala, Bismarck Lepe, who is the president of product strategy. The company was started on the first of April 2007 by Lepe, Sean Knapp, and Belsasar Lepe. All three formerly worked in senior positions in Google and come from first-class educational backgrounds. They set about building a platform focused on the monetisation of video. The Google experience emphasised search and relevancy and left the new Ooyala team with an insight into how to optimise monetisation opportunities by observing user interactions. By knowing what the viewers used, what they shared, and so on, they could make better recommendations for advertising. And that leads to higher value advertising.

However, they realised that there is still some further transitioning to complete in the advertising sector before a monetisation model can survive on its own. First, they needed to present a more complete service offering, and so they set about building a more fully featured online video publishing platform.

One of the things they looked at early on, concurrent with Move and a handful of others, was the benefit of adaptive bitrate (ABR) streaming. Interestingly, their focus was again on monetisation rather than the more famous benefit of flexible quality of delivery in dynamic network conditions (for which this ABR technology has become synonymous since Microsoft’s Smooth Streaming became popular).

The Ooyala team noted that one of the key benefits of ABR was that you could “localise” just a small “starting part” of the file and host and deliver this via the cache of a premium, globally present CDN and, in the background, source a more optimised stream from a cheaper CDN. The advantage of ABR is that you can jump a server or even a CDN midstream. So as the initially prebuffered “chunk” that is delivered upfront and quickly from the expensive “global CDNs” cache in your ISP comes to an end, you can seamlessly switch the stream to an alternative source—perhaps from a server several “hops” away on a smaller but likely cheaper CDN.

I found that a fascinating use of the technology.

So within a very short period of time, the team had really got stuck into the heart of some of the sector’s most pervasive issues and newest technologies, and with really deep technical understanding, the company began to emerge as an operator providing not just transmission and monetisation but critically also building out a fantastic, usable interface for analytics.

Sean Knapp had led iGoogle, and so he has brought a keen eye for usability and design to the team, and the emphasis on simplicity in the interface is self-evident: my review of the Online Fight Channel highlighted this to me.

Right through from publishing control to the interpretation of the use of the video, usability and functionality is at the fore.

Through to the end of 2008, the founders were tightly focused on building the platform. Then, at the end of 2008, they changed the model from being usage-based, directly passing their CDN and hosting costs onto their clients at a premium, to a platform fee model, more like a flat rate service for tiers of service that include usage.

“Usage jumped 1,000%,” according to Bismarck Lepe, “in both 2009 and 2010.”

Since the cost of CDN was less critical to Ooyala’s pricing, the need to develop and maintain their own ABR technology became less important; after all, their core business focus was monetisation, not video technology, although Bismarck noted that they still transcode input video in-house, outputting for Flash, Silverlight, 3GP, and HTML5.

Bismarck saw the rapid emergence of HMTL5 over the past 8 or 9 months. In some ways he considers the volatility of formats and the ability to simply adjust as one of the core OVP opportunities. It offers adaptability and thus sustainability, which, perhaps, simple hosting and distribution CDNs have not been able to.

So at this point I asked him what he made of the 800-pound gorilla. His response was pragmatic, but it also focussed on a slightly different positioning. “In many ways the sector owes them a lot for investing in the industry, but we have a slightly different target: we are focused on monetisation, on knowing and understanding the consumer experience,” he says. “Brightcove focuses on ad networks [and] content syndication and would like to publish for anyone. We want the monetisation element of Ooyala to be pervasive; we want to provide options for monetisation.”

Analysing the Analytics

One of the comments at Streaming Media’s Content Delivery Summit in London noted that some adaptive bitrate systems return more logging information than video that is sent. I asked Bismarck if, in their mission to produce detailed analytics, they faced problems with handling the data they received back in a timely and meaningful way. “The players ping the servers three or four times a second, and each time we collect 50 stats over 10 dimensions right to the individual profile and granular to the city,” he says. “However, the player has changed with time, and now our trend is a move from purely robust reporting to focus on insight to facilitate optimisation and making the data more actionable.” They expect to have automated optimisation available by the end of 2011.

I’m going to take a second to break out and cite two lines of thinking that I put to Bismarck for context to then ask him about his views on the actual value in the market of advertising.

The first was recalling an article I wrote a year ago where I was looking for profitable online video models funded solely by advertising. I had had trouble finding any companies that were profitable purely from ad revenues, only finding three (all with fewer than 10 employees and most only licensing content provided by third parties). My concern was that there simply wasn’t the advertising revenue in the sector.

The second was a continuation of this, and it surrounds an idea that I have been using as a discussion point at various conferences

and events recently: the traditional broadcast industry’s ratings agencies’ figures are wildly exaggerated, and the streaming media industry’s ability to accurately report video usage highlights that the reality of viewing volumes for media events is far smaller than the traditional agencies have been convincing advertisers they are for the past couple of decades. This has so far been a problem for streaming media since the “truth” of audience volumes has looked very small to advertisers normally buoyed up on “million viewer audiences”. My thinking is that if you spend $1 million on a TV audience that you are being told is 1 million viewers and see a return on your ad-investment even though, in reality, the audience is only 20,000, then when you move the broadcast to a streaming format (from the TV) and you still get 20,000 viewers, why is the streaming advertising deal worth, at $10 cost per thousand (CPM), only $20,000 and not the same $1 million?

I put these two examples to Bismarck and asked him his thoughts about where the online advertising industry was going:

“There is going to be a short-term contraction in advertising revenues as the media becomes accountable,” he said, referring to the transition from “ratings” to “measurement” as the media industry migrates. “While I was at Google, I was aware of the progress of the monetisation of YouTube, and while we saw at one end the ‘big deals’ where the CPM was up at $60 or $70, when we ran the stats on millions of users, we could see that 90% of adverts were being skipped, and so over time, we saw a 90% haircut on those CPMs. That said, we saw that the internet opens up new targeting opportunities, and after a couple of years’ contraction, which we are midway through, the new precision of targeting will drive new, higher CPMs.

“Typically, ad agencies see 10% to 15%,” he continued, “but if the return on investment is doubled by targeting, then the agencies could see 20% to 30%, and this will be the underlying stimuli. If 70% of your media can be monetised and leave you with 50% profit from your gross cost of delivery, then there is margin to plan production.”

Finally, I asked Bismarck what he thought is the secret to successful online publishing.

“I ultimately think the key is working out how to give content providers access to large audiences,” he says, “and the best way to do this is to bundle with big studio content.”

Ooyala is a very interesting company: it is a serious video and streaming media delivery player, but its underlying focus is purely on understanding how to make money with, and not merely from, the content. This take is incredibly important. It is presenting a look toward sustainability, not just clever technology.

I feel like ending this article by saying, “Watch this company, since it is most likely watching you watching them!”